Liquidation is the mechanism that prevents futures traders from losing more than their deposited margin. When a position moves against you and your margin balance falls to the maintenance margin level, the exchange closes all or part of your position — often before you can act manually.
Understanding how LMEX’s liquidation system works is not optional for futures traders. It is the difference between managing risk deliberately and being caught out at the worst moment.
What Triggers Liquidation?
Liquidation is triggered when the mark price — not the market price — reaches your position’s liquidation price.
LMEX uses mark price rather than last trade price to prevent short-term wicks on thin order books from triggering liquidations unfairly. The mark price is:
Mark Price = (Spot Index Price × 75%) + (LMEX Impact Mid Price × 25%)
The index price itself is the average of feeds from Woo, Gate.io, Binance, OKX, and Bybit, with the highest and lowest values removed. This multi-source design makes it resistant to manipulation on any single exchange.
Partial Liquidation: The First Response
Before fully closing a position, LMEX attempts partial liquidation — reducing only the portion of the position necessary to bring margin back above the maintenance threshold. This is the system’s preferred first step. It gives traders a better outcome than an outright forced closure: part of the position survives, and there is time for conditions to improve.
Full liquidation proceeds only when partial liquidation cannot restore margin adequately.
The Insurance Fund
When a position cannot be closed at or above the bankruptcy price, LMEX draws on its insurance fund to cover the shortfall. The insurance fund absorbs the difference between the bankruptcy price and the actual execution price, preventing that gap from falling on other market participants.
This is standard practice at reputable derivatives exchanges. Without an insurance fund, socialised loss mechanisms — where all traders absorb a liquidation shortfall proportionally — would be the alternative, which is a significantly worse outcome for the market.
For information on the current state of the insurance fund, refer to the LMEX platform or contact support.
Auto-Deleveraging (ADL)
If the insurance fund is insufficient, LMEX activates auto-deleveraging (ADL). ADL matches the liquidated position against opposite positions, systematically reducing both sides until the liquidated position is fully closed.
Counterparties selected for ADL are ranked by profitability and leverage — those with the largest profitable, most leveraged positions are reduced first. LMEX’s trading interface displays an ADL indicator showing your current priority ranking, so you can monitor your exposure to this scenario.
Calculating Your Approximate Liquidation Price
For a long position:
Liquidation Price ≈ Entry Price − Affordable Loss Per Coin
Where:
- Affordable Loss = Available Margin Balance + Unrealised PnL − Maintenance Margin − (2 × Taker Fees) − Funding Fee
- Affordable Loss Per Coin = Affordable Loss ÷ (Position Size × Contract Multiplier)
Worked example (BTC perpetual long, 1,000 contracts, entry $9,000, $300 available balance):
Step 1 — Affordable Loss: 300 + ((8,999 − 9,000) × 1,000 × 0.001) − (8,999 × 1,000 × 0.001 × 0.5%) − (9,000 × 2 × 1,000 × 0.001 × 0.06%) − (8,999 × 1,000 × 0.001 × 0.0013%) = ~243.09 USDT
Step 2 — Affordable Loss Per Coin: 243.09 ÷ (1,000 × 0.001) = 243.09
Step 3 — Approximate Liquidation Price: 9,000 − 243.09 = $8,756.91
If the mark price reaches $8,756.91, liquidation is triggered.
Risk Limits and Large Positions
LMEX operates a tiered risk limit system. Traders holding large positions must post proportionally more collateral as their position size grows — the initial and maintenance margin requirements increase in steps. This reduces the probability that a very large forced liquidation will destabilise the market.
You only need to manually increase your risk limit when you wish to hold positions above the base threshold for a given contract. The risk limit panel on the trading interface shows your current tier and allows adjustment. Full details are in the risk limits guide.
Four Ways to Reduce Liquidation Risk
Use lower leverage. At 100x on BTC, the margin of error before liquidation is under 0.5%. At 10x, it is roughly 9.5%. Lower leverage is not necessarily less profitable over time — it is far more survivable.
Monitor your liquidation price. The trading interface shows your current liquidation price live. When the mark price approaches it, add margin or reduce your position.
Set stop-loss orders. A stop order closes your position at a predetermined price before the mark price reaches your liquidation level. Closing voluntarily preserves more capital than forced liquidation.
Manage your wallet balance. Transfer profits out of your futures wallet periodically unless you intend for that capital to remain at risk. LMEX’s system can automatically refill margin from your wallet balance — be deliberate about whether you want that behaviour.
Frequently Asked Questions
What is the difference between market price and mark price? Market price is the last traded price on LMEX. Mark price is a calculated fair value blending the external index (75%) and LMEX book depth (25%). Liquidations are triggered by mark price only — not by candle wicks in the market price.
Can I be liquidated on a hedged position in Hedge Mode? Yes. Even fully hedged positions require collateral. If your total margin balance falls below the maintenance requirement, the system liquidates the hedged portion first, then any remaining open positions.
What happens to remaining margin after liquidation? If any margin balance remains after the system closes the position at the bankruptcy price, it is returned to your wallet.
Does partial liquidation always happen first? The system attempts partial liquidation whenever the maths allow — i.e., when reducing part of the position would be enough to restore margin above the maintenance threshold. If a partial closure cannot achieve this, full liquidation proceeds directly.
